In late 1975, the District of Columbia was moving forward with plans to sell municipal bonds when Sen. Thomas A. Eagleton (D-Mo.) intervened with questions about the accuracy of the city's books.
In some respects the questions were natural. New York City's financial troubles were fresh on peoples' minds. But they were also an irritating reminder to a city recently released from government by Congress that the release was conditional.
The fallout from the dispute was a delay in the bond issue and a revamping of the city's financial management system, a process still under way but more easily accepted now than it once was.
Last week Eagleton, a chairman of the Temporary Commission of Financial Oversight of the District of Columbia, and Mayor Marion Barry Jr. announced the successful completion of the city's first independent audit and hailed it as a great step forward.
In 1975, following Eagleton's questions about the city's books, fromer U.S. comptroller general Elmer B. Staats testified that the city's financial management system was so chaotic that its books were unauditable. That conclusion was later concurred in by the accounting firm Arthur Anderson & Co.
The city still has not undergone a complete audit. That happens next year. But at the end of the city's fiscal 1979, Andersen and Lucas Tucker & Co., also independent public accountants, audited the city's yearend balance sheet and said it fairly represents the financial condition of the District.
With the full audit next year and the continued implementation of the financial management system, city officials hope to enter the municipal bond market by 1981.
Barry called the balance sheet audit "a considerable achievement," but noted that the District still faces "a substantial challenge in our ongoing efforts to assure that rigor is establishd throughout the District's accounting system."
Among the benefits of the balance sheet audit is that it forced the city to face up to some of its financial planning problems sooner rather than later, according to Robert F. Stephens, acting executive director of the temporary commission on financial oversight.
Among those problems were building in a reserve to cover any expenditures under federal grants that might be disallowed and dealing with the city's massive pension fund liability.
The fiscal 1979 yearend results indicated a deficit of $285 million for the year and an accumulated deficit at year's end of $1 billion. Most of that deficit reflected acrued pension liabilities by the [TEXT OMITTED FROM SOURCE]
District, members to the city financial staff said.
"It focuses on some of the problems the District can deal with this fiscal year instead of next year," said Stephens. "If we delay taking action on some of the problems the city has until next year, it would affect the bond rating."
Not all municipalities -- not even all of those who issue municipal bonds -- are audited independently, he said, but such audits are becoming more common.
The audits should serve to increase investor and congressional confidence in the city's financial management and, as such, should help move the city toward more fiscal autonomy, he said. Selling bonds will reduce reliance on congressional appropriations.
"The District government and its residents now know where the city stands financially," said Eagleton. "The audit does not solve the city's problems, but it provides a road map for finding solutions."